You could word it a little better. And it isn't an apology if you are defending yourself.
"In my defense I didn’t hurt her in anyway I just made comments about her."
If she went to the principals office crying, how could you think that you did not hurt her? Words can be as painful as a fist. She probably has self-esteem issues, and you just soccer punched that. This is like making fun of someone who has cancer, and saying that thats ok.
"She just took it the wrong way."
Do you expect her to laugh with you when you are calling her a retard? Do you expect her to smile when you make fun of the way she looks? How was she suppose to take this exactly? It sounds like you were making fun of her, was she just supposed to be okay with that?
"As you know it wasn’t I who poured water over her head. I admit I was involved in it but I didn’t do the act.I just laughed."
And that made it okay? What did you do to stop this? Did you ever think about how this would effect her? Standing there and laughing is just as bad as the person who poured the water. She is a person too, and if she was crying, obviously like any person has feelings. This was completely, and morally, wrong.
As for the principal comment, you are in no position to be demanding apologies, with the "I forgive you." What you did is actually worse than what your Principal told you. And look at it this way, how did it feel to have your Principal talk down to you? If you didn't like it, how do you think it felt for this girl when you were making fun of her?
Keep all this in mind when you are writing your apology. And making fun of someone who was born this way, is in no way acceptable and you should be ashamed of yourself. What did this girl ever do to you? Why of all the people in your school, do you choose to pick on the poor girl who is mentally challenged? You really need to re-examine your actions, and actually think next time before you do something like this, or you may really get kicked out of school. You were warned so many times, but never stopped. This apology needs to really show how sorry you are (hopefully you are), and show your principal that you wont do any of this again. Because being warned so many times, what is to stop you from doing this again? If it took almost getting kicked out of school for you to see this, you have GOT to change your behavior.